Tags: Egypt | oil | Suez | pipeline

UK Telegraph: Egypt Crisis Might Threaten Oil Supply Lines

By Michael Kling   |   Tuesday, 20 Aug 2013 08:03 AM

Violence in Egypt threatens to disrupt vital oil and gas supply lines.

A substantial amount of oil and liquefied natural gas travels through the Suez Canal. In addition, the 200-mile Suez-Mediterranean, or Sumed, pipeline through Egypt is a critical energy supply route from the Persian Gulf to Europe and North America.

The Egyptian army ousted Muslim Brotherhood President Mohamed Morsi and unleashed a bloody crackdown on his supporters. Observers fear angry supporters will attempt to disrupt oil-supply routes and that violence could spread throughout the region.

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Responding to fears of oil supply disruption, Brent crude prices jumped to a four-month high of $111.23 on Thursday, according to The U.K. Telegraph.

If the Suez Canal and Sumed pipeline closed, ships would have to transport oil around the Cape of Good Hope, adding a 2,700-mile trip and substantial costs and time.

While insurers haven't panicked, one insurer, Skuld, warned ship crews not to go ashore in Egypt, The Telegraph reported.

"Members are advised to ensure that ships and crew calling at Egyptian ports or transiting the Suez Canal remain on alert and take suitable precautions to ensure their safety," Christian Ott, Skuld’s vice-president, head of claims, said, according to The Telegraph.

"Given the announcement of the state of emergency, and the continued situation on the ground, vessels and crew need to exercise particular caution if any crew step ashore – even for short periods of time."

In addition, Egypt is an oil producer, although it produces only about 0.9 percent of the world’s oil and 1.8 percent of its natural gas.

Royal Dutch Shell, a major producer in the country, said it closed its offices and restricted travel to the country, according to The Telegraph.

BP, the largest producer there, said is its operations have not been affected. "We are monitoring the security situation in the areas where we have offices," a spokesman told Reuters. "All our people are safe and accounted for."

Traders told CNBC that the risk premium from Egyptian violence is already been priced into oil. In CNBC's weekly sentiment survey 14 out of 20 respondents, or 70 percent, believe prices will increase this week.

"Some risk premium has been built into markets for the situation in Egypt," Ric Spooner, chief market strategist at CMC Markets, told CNBC. "However, further upside from this source is limited unless the market gets more tangible evidence that Suez may be disrupted."

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